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5 States Leaving the Most Obamacare Medicaid Expansion Money on the Table

According to this study, more than 6.7 million people and $423 billion in federal funding are being left out in the cold by states choosing not to expand their Medicaid program. See which states are leaving the most on the table and which insurers this could impact the most.

The Affordable Care Act is clearly a transformative law, as evidenced by the more than 8 million people who signed up for health insurance on state and federal marketplace exchanges last year.

Yet it's also a highly controversial law that has created wild bifurcations of opinion from individuals and states with regard to its ability to lower the number of uninsured and keep medical cost inflation under control. One particularly notable issue of contention among supporters and opponents of the Affordable Care Act is Medicaid expansion.

The battle over Medicaid expansion Under the 2010 law, the federal government was willing to pay the lion's share of costs to expand Medicaid in all 50 states to include people who earn up to 138% of the federal poverty level, which in 2014 equates to $16,104 or less for an individual.

The plan was for the U.S. government to initially supply the funding to cover these newly eligible individuals, then in 2016 begin rolling back its reimbursement through 2020 to a 90% federal match rate. That would slowly place more of the onus of the added Medicaid coverage on the individual states.

Twenty-six states accepted federal funding to expand their Medicaid program. However, 24 states chose not to, either due to disagreement over the basic tenets of the ACA or because of concerns regarding the cost burden after the federal government begins scaling back its funding two years from now.

The real cost of nonexpansionAccording to the a new report from the Robert Wood Johnson Foundation and the Urban Institute, not expanding Medicaid in those 24 states means the loss of Medicaid eligibility for 6.74 million people and $423.6 billion in federal funding between 2013 and 2022 being left on the table.

The foundation examined spending in 16 of those 24 states, and concluded that Medicaid expansion would have been a boon to the state budget in every instance. The report specifically notes that high federal matching rates (even with the potential for lawmakers to lower federal Medicaid spending in the future), as well as high state savings rates and sources of new revenue, would have exceeded the increased costs associated with expanding Medicaid in all 16 states studied.

By the foundation's calculations, spending to broaden Medicaid participation for the 24 current nonexpanding states between 2013 and 2022 would have cumulatively amounted to $31.6 billion in extra costs, or a 3.3% increase over their current combined Medicaid spending forecast. By comparison, these states would have received $423.6 billion in federal funds, a nearly 27% increase over current projections. In other words, for each state dollar spent on Medicaid expansion those states would be in line to receive $13.41 in federal funds.

Five states leaving the most money on the table As you might imagine, some states are cutting out a particularly large amount of money by choosing not to expand their Medicaid program. This is, in turn, leaving a number of potentially eligible citizens out in the cold, so to speak.

Based on figures from the Robert Wood Johnson Foundation, the five states leaving the most federal funding on the table are:

State

Federal Medicaid Funding Lost (in billions)

Uninsured Not Qualifying for Coverage

Florida

$66.1

1,060,000

Texas

$65.6

1,552,000

North Carolina

$39.6

414,000

Pennsylvania

$37.8

381,000

Georgia

$33.7

572,000

Source: Robert Wood Johnson Foundation.

Combined, these five states account for close to $243 billion in forecast federal funding for Medicaid expansion between 2013 and 2022, or more than half of the $423.6 billion being left on the table. These states are also home to just shy of 4 million people who won't be eligible to receive Medicaid due to the lack of expansion. That's 59% of the 6.74 million people who won't qualify for coverage, according to the report.

Could these insurers feel the pinch? In addition to making it more difficult for lower-income people to obtain insurance, the actions by these five states could be a notable negative to Medicaid-based insurers that have been looking for ways to add new members.

WellCare Health Plans(NYSE:WCG) is one provider of government-sponsored care that is definitely feeling the pinch, as evidenced by its share price swan dive following its second-quarter earnings release in July. WellCare pointed specifically to higher costs associated with Florida's revised Medicaid managed care program for the shortfall in its results.

Source: WellCare Health Plans 2013 annual report.

WellCare's future prospects to add new Medicaid members to its network may also be dim. Medicaid revenues from Florida and Georgia are expected to account for about one-quarter of the company's total annual premium revenue in 2014. With new members being potentially hard to come by in these two critical states, it could be difficult for WellCare to live up to investors' expectations.

Centene actually boosted its profit guidance earlier in 2014 after announcing stronger than expected enrollments and a large boost in premium and service revenue. Centene has benefited from dipping its toes into the individual insurance market, as well as broadening its consumer focus to include a greater number of citizens in states in which it operates. In Florida, for example, the company won a sizable portion of the state's revised Medicaid program, which includes blind, disabled, and elderly persons.

Yet many of these same markets may also present challenges. Centene has Medicaid and Children's Health Insurance Program plans available in Florida, Georgia, and Texas. Without Medicaid expansion Centene's future growth in these markets could be challenged.

In similar fashion, Molina has seen success in transitioning into the individual care market for the first time, as well as picking up a number of new government-sponsored members in large markets that expanded their Medicaid program, such as California and Washington state. Combined, these two markets were responsible for 40% of Molina's covered health plans in 2013.

Texas and, to a lesser extent, Florida, also represent areas of important growth opportunity for Molina. As of the end of 2013, Molina counted 252,000 Texans and 89,000 Floridians as members. With the Robert Wood Johnson Foundation finding that a combined 2.6 million people in Texas and Florida are not eligible for Medicaid because the states rejected expansion, Molina could be missing out on quite a few potential new members.

Only time will tell if the new report's calculations prove accurate, but one thing is a near-certainty: These insurers aren't going to sit idly by as nearly half of all U.S. states reject federal funds to expand Medicaid. Using transparency and the new ease of market entry to their advantage, I'd expect an increasing number of Medicaid-based insurers to take a chance in more individual state exchanges, and to look for opportunities to cover broader audiences within their existing networks.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Author

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and investment planning. You'll often find him writing about Obamacare, marijuana, drug and device development, Social Security, taxes, retirement issues and general macroeconomic topics of interest. Follow @TMFUltraLong